Q.1 What is the primary purpose of public finance?
To maximize profits of private firms
To manage government revenue and expenditure
To regulate foreign trade
To control inflation directly
Explanation - Public finance deals with the collection of revenue, government expenditure, and the management of public resources to achieve economic stability and growth.
Correct answer is: To manage government revenue and expenditure
Q.2 Which of the following is a direct tax?
Sales tax
Income tax
Excise duty
Customs duty
Explanation - Direct taxes are paid directly by individuals or organizations to the government. Income tax is directly levied on a person's earnings.
Correct answer is: Income tax
Q.3 What is a primary deficit?
Total government expenditure exceeds total revenue including interest payments
Total revenue minus non-interest expenditure
Total revenue minus expenditure excluding interest payments
Difference between imports and exports
Explanation - Primary deficit is the fiscal deficit of a government excluding interest payments on previous borrowings.
Correct answer is: Total revenue minus expenditure excluding interest payments
Q.4 Which of these is considered a progressive tax?
Sales tax
Income tax
Property tax
Excise duty
Explanation - Progressive taxes increase with the level of income, ensuring higher earners pay a larger proportion. Income tax usually follows this principle.
Correct answer is: Income tax
Q.5 Which concept measures the government’s borrowing requirement after accounting for revenue and expenditure?
Budget surplus
Fiscal deficit
Current deficit
Trade deficit
Explanation - Fiscal deficit represents the gap between total government expenditure and total revenue (excluding borrowings), indicating the borrowing need.
Correct answer is: Fiscal deficit
Q.6 Which of the following is a capital receipt for the government?
Taxes
Loans raised
Fees for public services
Excise duty
Explanation - Capital receipts include loans and borrowings by the government, which do not affect the annual revenue but impact assets and liabilities.
Correct answer is: Loans raised
Q.7 What is meant by 'budgetary deficit'?
Excess of revenue over expenditure
Excess of expenditure over revenue
Revenue equals expenditure
Excess of imports over exports
Explanation - A budgetary deficit occurs when government expenditure exceeds its revenue receipts in a given fiscal year.
Correct answer is: Excess of expenditure over revenue
Q.8 Which is an example of indirect tax?
Income tax
Corporate tax
Sales tax
Property tax
Explanation - Indirect taxes are levied on goods and services and are ultimately paid by consumers. Sales tax is a typical indirect tax.
Correct answer is: Sales tax
Q.9 Which of the following is a main function of public expenditure?
Profit maximization
Redistribution of income
Reducing exports
Encouraging monopolies
Explanation - Public expenditure helps in reallocating resources and redistributing income to achieve social equity and economic stability.
Correct answer is: Redistribution of income
Q.10 What does a 'balanced budget' mean?
Government spends more than it earns
Government earns more than it spends
Government expenditure equals revenue
Government reduces taxes to zero
Explanation - A balanced budget occurs when total government receipts match total government spending in a fiscal year.
Correct answer is: Government expenditure equals revenue
Q.11 Which of the following is a non-tax revenue of the government?
Income tax
Customs duty
Profits from public enterprises
Excise duty
Explanation - Non-tax revenue includes earnings from government-owned businesses, fees, fines, and other sources not related to taxation.
Correct answer is: Profits from public enterprises
Q.12 Which is considered a regressive tax?
Income tax
Wealth tax
Sales tax
Corporate tax
Explanation - Regressive taxes take a higher proportion of income from low-income individuals than high-income individuals. Sales tax affects all equally, making it regressive in impact.
Correct answer is: Sales tax
Q.13 Which component of the budget includes salaries of government employees?
Capital expenditure
Revenue expenditure
Development expenditure
Public debt
Explanation - Revenue expenditure refers to spending that does not create assets but meets the routine operational costs of the government.
Correct answer is: Revenue expenditure
Q.14 What is meant by 'tax incidence'?
The rate at which tax is levied
The ultimate burden of tax on the individual
Collection method of tax
The total revenue from taxes
Explanation - Tax incidence refers to who ultimately bears the cost of a tax—whether the producer or the consumer.
Correct answer is: The ultimate burden of tax on the individual
Q.15 Which of the following is a benefit of public debt?
Increases private savings
Helps finance productive investment
Reduces taxation
Decreases inflation automatically
Explanation - Public debt allows the government to raise funds for long-term investments without immediate tax increases.
Correct answer is: Helps finance productive investment
Q.16 What does 'fiscal policy' primarily involve?
Monetary supply regulation
Government revenue and expenditure decisions
Control of imports and exports
Setting interest rates
Explanation - Fiscal policy uses government spending and taxation to influence the economy, including controlling inflation, growth, and employment.
Correct answer is: Government revenue and expenditure decisions
Q.17 Which of these is a feature of a good tax system?
Equity, certainty, convenience, efficiency
Complexity, high rates, inequity, evasion
Only equity
Only high revenue collection
Explanation - A good tax system is fair, predictable, easy to pay, and does not distort economic decisions.
Correct answer is: Equity, certainty, convenience, efficiency
Q.18 What is the main purpose of subsidies in public finance?
To increase government revenue
To promote social welfare and reduce costs
To reduce employment
To discourage production
Explanation - Subsidies are given by the government to lower the cost of essential goods/services and support certain sectors.
Correct answer is: To promote social welfare and reduce costs
Q.19 Which of the following is considered a merit good often subsidized by the government?
Luxury cars
Education and healthcare
Alcohol
Tobacco
Explanation - Merit goods are those whose consumption is encouraged by the government, often via subsidies, because they benefit society.
Correct answer is: Education and healthcare
Q.20 Which of the following represents a primary function of public finance?
Production of private goods
Maintaining law and order, defense, and public services
Maximizing corporate profits
Regulating labor unions
Explanation - Public finance ensures funding of essential services that the private sector may not efficiently provide.
Correct answer is: Maintaining law and order, defense, and public services
Q.21 Which term describes government spending that creates assets or reduces liabilities?
Revenue expenditure
Capital expenditure
Developmental spending
Deficit financing
Explanation - Capital expenditure is spent on acquiring assets or reducing liabilities, contributing to the economy's productive capacity.
Correct answer is: Capital expenditure
Q.22 Which of the following is a method used by governments to reduce fiscal deficit?
Increasing public debt without spending control
Reducing taxes and increasing subsidies
Controlling expenditure and enhancing revenue collection
Printing unlimited money
Explanation - Fiscal deficits can be reduced by prudent spending and effective revenue generation measures.
Correct answer is: Controlling expenditure and enhancing revenue collection
Q.23 Which of these is an example of a social expenditure by the government?
Military spending
Education and healthcare
Infrastructure like highways
Public debt repayment
Explanation - Social expenditure refers to government spending that directly benefits the population’s welfare, like education, healthcare, and poverty alleviation programs.
Correct answer is: Education and healthcare
Q.24 Which of the following statements is true about public goods?
They are excludable and rivalrous
They are non-excludable and non-rivalrous
They are only for high-income groups
They are taxed directly
Explanation - Public goods, such as national defense and street lighting, are available to everyone, and one person’s consumption does not reduce availability to others.
Correct answer is: They are non-excludable and non-rivalrous